Spanish banks: A rock and a hard place

Spanish banks on paper remain firmly committed to their Latin businesses – their best hope for future profits. But further troubles at home could yet force them into a radical downsizing

By John Rumsey

Most market watchers see the idea of a Spanish banking
parent with semi-independent and profitable Latin subsidiaries
holdings as an eminently viable business model.

The argument is not hard to grasp: high profits from Latin
America would bolster consolidated results and allow
conservatively managed Spanish giants to meet tough reserve and
provisioning requirements at home.

Santander group profits have fallen, of late, dramatically,
slowing from €8.18 billion ($10.1 billion) in 2010 to
€5.35 billion last year. But profits from Latin America
have held up well: they did decline, but marginally –
from €4.73 billion to €4.66 billion –
helping smooth out consolidated results.

Latin subsidiaries have thrived and have established
financial and management independence, says Franklin
Santarelli, head of fixed income, Latin America at Fitch in
São Paulo.